Paragraph 1 Income tax

Part 10A of ITA 2007 (alternative finance arrangements) is amended as follows.

In section 564A (introduction), in subsection (3)(b) after “section 564D” insert “or 564DA”.

In section 564D (diminishing shared ownership arrangements)—

After section 564D insert—

“Diminishing shared ownership arrangements: refinancing

564DA

(1)

This section applies to arrangements if under them—

(a)

a person (“the customer”) has a beneficial interest in an asset,

(b)

the customer disposes of some or all of their beneficial interest in the asset to another person (“the financier”),

(c)

either—

(i)

the financier is a financial institution or a regulated home purchase plan provider (within the meaning of section 564D(7)), or

(ii)

the arrangements are regulated electronic system facilitated arrangements (within the meaning of section 564D(1A)),

(d)

the customer is to make payments to the financier amounting in aggregate to the consideration paid for the financier acquiring a beneficial interest as mentioned in paragraph (b) (but subject to any adjustment required for such a reduction as is mentioned in subsection (6)),

(e)

the customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,

(f)

the customer is to make other payments to the financier (whether under a lease forming part of the arrangements or otherwise),

(g)

the customer has the exclusive right to occupy or otherwise to use the asset, and

(h)

the customer is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, an increase in its value).

(2)

This section also applies to arrangements which supersede arrangements to which section 564D or subsection (1) of this section applies if under them—

(a)

a person (“the financier”) acquires so much of the beneficial interest in an asset mentioned in section 564D(1)(a) or subsection (1)(b) of this section as has not yet been acquired as mentioned in section 564D(1)(d) or subsection (1)(e) of this section,

(b)

either—

(i)

the financier is a financial institution or a regulated home purchase plan provider (within the meaning of section 564D(7)), or

(ii)

the arrangements are regulated electronic system facilitated arrangements (within the meaning of section 564D(1A)),

(c)

the customer mentioned in section 564D(1) or subsection (1) of this section is to make payments to the financier amounting in aggregate to so much of the payments mentioned in section 564D(1)(c) or subsection (1)(d) of this section as are yet to be paid (but subject to any adjustment required for such a reduction as is mentioned in subsection (6)),

(d)

that customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,

(e)

that customer is to make other payments to the financier (whether under a lease forming part of the arrangements or otherwise),

(f)

the customer has the exclusive right to occupy or otherwise to use the asset, and

(g)

the customer is exclusively entitled to any income, profit or gain arising from or attributable to that asset (including, in particular, an increase in its value).

(3)

For the purposes of subsections (1)(a) and (b) and (2)(a) it does not matter if—

(a)

another person who is not the customer or the financier also has a beneficial interest in the asset, or

(b)

the financier also has a legal interest in it.

(4)

Subsection (1)(g) or (2)(f) does not prevent the customer from granting an interest or right in relation to the asset if the conditions in subsection (5) are met.

(5)

The conditions are that—

(a)

the grant is not to—

(i)

the financier,

(ii)

a person controlled by the financier, or

(iii)

a person controlled by a person who also controls the financier, and

(b)

the grant is not required by the financier or arrangements to which the financier is a party.

(6)

Subsection (1)(h) or (2)(g) does not prevent the financier from—

(a)

having responsibility for any reduction in the asset’s value, or

(b)

having a share in a loss arising out of any such reduction.

(7)

This section is subject to section 564H (provision not at arm’s length: exclusion of arrangements from sections 564C and 564D, this section and sections 564E to 564G).”

In section 564K (alternative finance return resulting from diminishing shared ownership arrangements)—

In section 564V (exclusion of some alternative finance return from sale consideration), in subsection (2), after “section 564D” insert “or 564DA”.

After section 564W (diminishing shared ownership arrangements not partnerships) insert—

“Diminishing shared ownership arrangements: further provision in respect of refinancing

564WA

(1)

This section applies in respect of diminishing shared ownership arrangements to which 564DA applies.

(2)

If, under the arrangements, the customer disposes of an asset as mentioned in section 564DA(1)(b), any profit, gain or loss realised by the customer on the disposal of the asset is to be treated as not having been realised for income tax purposes.

(3)

If, under the arrangements, the customer—

(a)

disposes of an asset as mentioned in section 564DA(1)(b),

(b)

acquires the asset as mentioned in section 564DA(1)(d) and (e) or (2)(c) and (d),

(c)

and subsequently disposes of the asset,

the disposal of the asset mentioned in paragraph (a) and the acquisition of the asset mentioned in paragraph (b) (together with any intervening disposals or acquisitions of the asset) are to be treated as not having occurred for the purpose of calculating, for income tax purposes, the amount of the profit, gain or loss realised by customer on the subsequent disposal of the asset.

(4)

In subsections (2) and (3), “the customer” has the same meaning as in section 564DA.

(5)

If, under arrangements to which section 564DA(2) applies (“successor arrangements”), the financier under the diminishing shared ownership arrangements that the successor arrangements supersede transfers their interest in a lease forming part of those arrangements to the financier under the successor arrangements, the transfer is not to be treated as involving a disposal or acquisition of the interest for income tax purposes.”